What is Meant by Declaration of Trust
In Malaysia, a declaration of trust is a legal tool used for estate planning. It allows you, the owner of assets (called the Settlor), to manage how those assets are held and distributed. Here's a breakdown of how it works:
Transfer of ownership (sort of): You declare that you're holding the assets "in trust" for yourself and potentially others (beneficiaries). This doesn't fully transfer ownership, but it creates a legal obligation to manage the assets for the benefit of those named in the trust.
Flexibility and Control: A declaration of trust is revocable, meaning you can change your mind and modify the terms during your lifetime. You also retain control over the assets until a triggering event occurs, such as death or disability.
Benefits: There are several advantages to using a declaration of trust. It avoids the need for probate, which can be a lengthy and costly process. It also allows you to set specific conditions for how the assets are distributed to your beneficiaries.
Not a replacement for a Will: While a declaration of trust is useful, it doesn't replace a Will. A Will can handle assets not included in the trust and provide instructions for other matters.
For setting up a declaration of trust, it's advisable to consult with a lawyer who can ensure it's done correctly and meets your specific needs.
What is a Valid Declaration of Trust
A valid declaration of trust in Malaysia hinges on three key requirements:
Certainty of Intention: This means it must be absolutely clear that you, the Settlor, intend to create a trust. The document should explicitly state this intention to hold the assets for the benefit of beneficiaries.
Certainty of Subject Matter: The declaration needs to clearly specify the assets that are being placed in the trust. This could be property, investments, or even money in a bank account. There should be no ambiguity about what belongs to the trust.
Certainty of Objects (Beneficiaries): The beneficiaries of the trust must be clearly identified. Their identities and the nature of their entitlement (how much they receive) should be unambiguous. This ensures the trustee knows who to distribute the assets to and how much each beneficiary gets.
If any of these three elements are missing or unclear, the declaration of trust may be considered invalid by a court. This could lead to complications in managing and distributing the assets as you intended.
What if there is No Declaration of Trust
If there's no declaration of trust in Malaysia, the following scenarios might unfold depending on the asset type and whether you have a Will:
Assets without a declaration of trust: These assets will likely become part of your estate and go through the probate process. Probate can be time-consuming and incur legal fees.
Assets with a Will: If you have a Will, it will dictate how these assets are distributed according to your wishes. However, the probate process still applies, potentially causing delays.
Jointly owned assets: If an asset is jointly owned (e.t., property with a spouse), it might have survivorship rights. This means ownership automatically transfers to the surviving owner upon your death.
Here's a breakdown of the potential drawbacks of not having a declaration of trust:
Lack of Control: Without a trust, you have less control over how your assets are distributed after your death. Your Will dictates distribution, but probate can delay the process.
Potential Disputes: If your Will isn't clear or there's no Will, it can lead to disputes among beneficiaries. A well-drafted declaration of trust can help minimize this risk.
Beneficiaries under Age: If you have beneficiaries who are underage, a Will needs to appoint a guardian to manage their inheritance until they reach adulthood. A trust can be set up to manage the assets and distribute them to the beneficiary when they reach a specific age.
Overall, while not having a declaration of trust isn't necessarily detrimental, it can lead to delays, potential disputes, and less control over your assets' distribution.
Sample Declaration of Trust
To give you a general idea of the sample format, here's a basic structure:
Declaration of Trust
This Declaration of Trust (the "Trust") is made as of [Date] by:
[Your Name], NRIC No: [Your NRIC Number], residing at [Your Address] (the "Settlor").
WHEREAS, the Settlor is the beneficial owner of the following assets (the "Trust Property"):
[List of Assets - e.g., house located at [Address], bank account number ending in [last 4 digits]]
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants hereinafter contained, the Settlor declares as follows:
1. Holding on Trust: The Settlor hereby declares that he/she holds the Trust Property upon trust for the benefit of the following beneficiaries (the "Beneficiaries"):
[Beneficiary 1 Name], NRIC No: [Beneficiary NRIC Number] (to receive [percentage or specific amount])
[Beneficiary 2 Name], NRIC No: [Beneficiary NRIC Number] (to receive [percentage or specific amount])
[Continue listing beneficiaries]
2. Distribution of Trust Property: The Trust Property shall be distributed to the Beneficiaries in the proportions stated above upon the occurrence of the following event(s) (the "Triggering Event(s)"):
[Event 1 - e.g., death of the Settlor]
[Event 2 - e.g., Settlor becoming incapacitated]
3. Management of Trust Property: The Settlor shall be the Trustee of the Trust Property until the occurrence of the Triggering Event(s). Thereafter, [Name of Successor Trustee] (the "Successor Trustee") shall assume the role of Trustee. The Trustee shall manage the Trust Property in accordance with the terms of this Trust and with the duty of care owed to a beneficiary.
4. Amendment and Revocation: This Trust may be amended or revoked by the Settlor by a written instrument signed by the Settlor.
IN WITNESS WHEREOF, the Settlor has executed this Trust as of the date first written above.
[Your Signature]
[Your Printed Name]
WITNESSES
(Signature) (Printed Name) NRIC No: [NRIC Number]
(Signature) (Printed Name) NRIC No: [NRIC Number]
Remember, this is a simplified sample and may not be suitable for your specific situation.
How Professional can Help
What is Meant by Declaration of Trust
In Malaysia, a declaration of trust is a legal tool used for estate planning. It allows you to transfer ownership of assets to a trust, with a trustee managing those assets for the benefit of beneficiaries you designate. Here's how Professional can help with a declaration of trust:
Understanding the legalities: Professional can ensure the declaration is drafted correctly and complies with Malaysian law.
Choosing the right assets: Not all assets are suitable for a declaration of trust. Professional can advise on which assets are best suited for your goals.
Specifying beneficiary terms: Professional can help you clearly define how the trust assets will be distributed to your beneficiaries, including conditions and timelines.
Appointing a trustee: You can act as the trustee initially, but Professional can advise on appointing a successor or professional trustee for long-term management.
Considering tax implications: There may be tax implications associated with a declaration of trust. Professional can advise on potential tax liabilities.
Overall, Professional can ensure your declaration of trust is effective and achieves your estate planning goals.
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